CNA Financial to pay $2B to shift asbestos, pollution liabilities to Berkshire Hathaway unit
By APThursday, July 15, 2010
CNA Financial sheds some environmental liabilities
CHICAGO — Commercial insurer CNA Financial Corp. said Thursday it has agreed to transfer $1.6 billion of asbestos and environmental pollution liabilities to an insurance subsidiary of Warren Buffett’s Berkshire Hathaway Inc.
CNA Financial said the deal would “effectively eliminate a significant source of uncertainty” for the Chicago company, which is primarily owned by Loews Corp., a conglomerate controlled by New York’s Tisch family.
Under the deal, CNA Financial said several of its insurance subsidiaries have agreed to transfer the liabilities to National Indemnity Co., an insurance unit of Omaha-based Berkshire.
The CNA companies will pay a reinsurance premium of $2 billion to National Indemnity and transfer the right to collect reinsurance receivables worth about $200 million.
To secure its obligations, National Indemnity will deposit $2.2 billion in a trust for the benefit of the CNA companies.
Berkshire Hathaway has guaranteed the payment obligations up to the full aggregate reinsurance limit of $4 billion as well as certain of National Indemnity’s performance obligations under the trust agreement.
National Indemnity will assume responsibility for claims handling and collection from third-party reinsurers related to the CNA companies’ asbestos and environmental pollution claims.
“We believe this transaction is consistent with our focus on financial stability and delivering improved levels of operating consistency as we effectively eliminate a significant source of uncertainty from these legacy liabilities,” CNA Financial CEO Thomas F. Motamed said in a statement.
The closing of the deal, expected in the third quarter, is subject to the receipt of required regulatory approvals and the satisfaction of other closing conditions.
CNA expects to recognize an after-tax loss of about $375 million in the third quarter as a result of ther deal.
CNA shares rose 7 cents to $27.29 in afternoon trading Thursday while Berkshire Hathaway’s B shares fell 38 cents to $78.97.
